Keeping track of how much money is being generated and spent is a top priority for small business owners. The primary bookkeeping service tool for this type of monitoring is recorded on a cash flow statement. This document is designed to provide detailed information on a company’s profits. Here is a helpful guide on what you should know about a cash flow statement.

What Is A Cash Flow Statement?

The statement shows the total amount of funds being spent and earned by a business. In addition to tracking payroll and customer receipts, a cash flow statement identifies income tax and interest payments. It also lists funds paid to third party vendors. These statements are typically prepared and updated on a monthly, quarterly, and annual basis, either through a bookkeeping service provider or other professional. 

Why Should You Check It?

Small business owners must know their cash flow to avoid overspending and accumulating significant debt. When the cash flow statement shows positive readings, it means more funds are being generated than spent, which can confirm the ability to keep the company’s operations going.

On the other hand, when a business is paying out more funds than it’s generating, loans and other sources may be needed to maintain financial stability. Repeated cycles of negative cash flow could be a sign of trouble, which may require strategic changes. Regular monitoring of this bookkeeping service task is key so that entrepreneurs can identify where they need to make adjustments to stay in the black. 

How Do You Read a Statement?

To create a cash flow statement, business owners must know their asset investments, operational costs, and financing. These figures are added together to equal a company’s total cash on hand. In the asset investments column on the statement, expenses for business vehicles, equipment, stocks, and other investments are listed. 

Operational costs provide figures on daily expenditures and earnings from the sale of products and services. Also known as total net cash, this amount doesn’t include regular, fixed expenses such as rent and payroll. In the financing column are payments made to or received from creditors and lenders. Depending on the type of company, other expenses may also include dividend payments or stock sales. 

ZP Tax in Silver Spring, MD, helps small businesses of all sizes and demographics prepare and monitor their cash flow statements. The team of professionals will work with you to create a bookkeeping and tax preparation system tailored to your company’s unique financial needs. To learn more about their services, check out their website or call (301) 587-4829.